罗斯公司理财chpt007ppt课件.ppt

Corporate Finance  Ross  Westerfield  Jaffe
Sixth Edition
Sixth Edition
7
Chapter Seven
Net Present Value and Capital Budgeting
Chapter Outline
Incremental Cash Flows
The Baldwin Company: An Example
Inflation and Capital Budgeting
Investments of Unequal Lives: The Equivalent Annual Cost Method
Summary and Conclusions
Incremental Cash Flows
Cash flows matter—not accounting earnings.
Sunk costs don’t matter.
Incremental cash flows matter.
Opportunity costs matter.
Side effects like cannibalism and erosion matter.
Taxes matter: we want incremental after-tax cash flows.
Inflation matters.
Cash Flows—Not Accounting Earnings.
Consider depreciation expense.
You never write a check made out to “depreciation”.
Much of the work in evaluating a project lies in taking accounting numbers and generating cash flows.
Incremental Cash Flows
Sunk costs are not relevant
Just because “we have come this far” does not mean that we should continue to throw good money after bad.
Opportunity costs do matter. Just because a project has a positive NPV that does not mean that it should also have automatic acceptance. Specifically if another project with a higher NPV would have to be passed up we should not proceed.
Side effects matter.
Erosion and cannibalism are both bad things. If our new product causes existing customers to demand less of current products, we need to recognize that.
Estimating Cash Flows
Cash Flows from Operations
Recall that:
Operating Cash Flow = Net Income+ Depreciation
Net Capital Spending
Don’t forget salvage value (after tax, of course).
Changes in Net Working Capital
Recall that when the project winds down, we enjoy a return of net working capital.
Interest Expense
Later chapters will deal with the impact that the amount of debt that a firm has in its capital structure has on firm value.
For now, it’s enough to assume that the firm’s level of debt (hence interest expense) is independent of the project at ha